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All posts for the day July 26th, 2015

The escalation of the greek crisis recently has made me think about the connection between the economic development, austerity and political uncertainty. Unfortunately we don’t have a commonly accepted measure of political uncertainty or political instability.

However, I got an idea to make a simple measure of political instability in Europe. My idea is simply to count the total number of Prime Ministers, Finance Ministers and central bank governors a given country have had in a given period. A high number would indicate a high level of political instability.

The graph below shows this measure for 30 European countries since January 2009.

I have not done any deep analysis of the data so I am cautious not to make any strong conclusions based on what I have so far.

However, there is a few things I would note:

1) Greece by has been by far the most politically unstable country among the 30 European countries during the Great Recession.

2) All other countries are essentially within one standard deviation of the mean ranking.

3) There is no major differences between the political stability of countries with floating exchange rates relative to euro countries (and peggers).

4) Spain, Portugal and Ireland alle have been surprisingly politically stable during the Great Recession. Among the PIIGS only Italy comes close to the kind of political instability we have seen in Greece.

5) It isn’t surprising that Great Britain, Luxembourg, Sweden and Germany are among the most politically stable countries in the Europe.

6) However, Poland and Turkey have been remarkably stable in political terms. This will likely be a surprise to most people. Given what is happening in Turkish politics and recently geopolitical and military events the ranking could certainly be questioned.

7) Denmark and Finland have been surprisingly unstable politically during the Great Recession.

Obviously this is a very simple measure of political instability and if one want to use the ranking more work on the index would be needed.

For example, it is obviously that we might be more interested in looking at the change in the index rather than on the level of the index. Furthermore, some countries are likely “structurally” more stable than other countries. Should we account for that in some way?

Finally I have not taken into account differences in electoral systems in different countries. That likely distort the data.